Abstract
A world-wide study to index Financial Inclusion to assess the extent of penetration of banking services saw India rank a lowly 50, out of the 100 countries covered in the survey. This creates a need for dedicated initiatives in the field of financial inclusion and Economic Empowerment from across the Private, Public and Social Sectors. Various corporate firms have taken up the initiative of facilitating financial inclusion, Lupin Human Welfare and Research Foundation (LHWRF) is one such organization involved in creation of Self Helf Groups (SHG) and its linkage to bank. The case discusses the issues pertaining to SHG Bank linkage and critically analyzes the initiatives of the government in the field. By examining the Loan utilization pattern, the paper analyzes the sustainability of the model and discusses the shadows and lights associated with the SHG Bank linkage model.
Description
A worldwide study to index financial inclusion to assess the extent of penetration of banking services saw India rank a lowly 50, out of the 100 countries covered in the survey. This creates a need for dedicated initiatives in the field of financial inclusion and economic empowerment from across the private, public and social sectors. Various corporate firms have taken up the initiative of facilitating financial inclusion; Lupin Human Welfare and Research Foundation (LHWRF) is one such organization which is committed towards providing and enhancing economic opportunities for rural women. The foundation’s Bhopal centre is involved in creating women self-help groups (SHGs) in Raisen and Vidisha districts, nurturing them by strengthening capabilities through skill development and providing access to formal financial service (bank linkage). The organization aims to enhance livelihood opportunities to these women by creating social capital. The case undertakes to understand the various issues pertaining to SHG bank linkage model by analyzing the social responsibility model of LHWRF, Bhopal centre and examines the challenges faced by various stakeholders and sustainability of the social capital so created.
Learning Objective
The case discusses the issues pertaining to SHG bank linkage and critically analyzes the initiatives of the government in the field of financial inclusion. Through the specific case of LHWRF’s Bhopal centre, the author intends to discuss the issue of sustainability of SHGs promoted by Lupin? Examine the loan utilization pattern and the challenges faced by SHGs, Lupin and bank. Try to understand whether SHG bank linkage transforms the lives of rural women by bringing about a change in their socio-economic status or not?
Background on Financial Inclusion
The financial architecture in India got its major milestone when the process of nationalization of major commercial banks began, which resulted in a remarkable growth in the spread of banking system to the rural areas. Various initiatives for providing financial access to poor by linking them with banks have always been on the list of priority by government. In order to develop a financial infrastructure to increase accessibility to financial services has been facilitated by the Government of India (GOI) and the Reserve Bank of India (RBI). Other financial institutions such as the National Bank for Agriculture and Rural Development (NABARD) have also supported the initiatives taken by GOI and RBI to move towards developing accessible financial infrastructure.
Initiatives Undertaken by GOI and RBI
Self-help Group Bank Linkage Programme
In the year 1987, NABARD first invested its funds into the SHG model and after various actions research initiatives RBI accepted the SHG strategy as an alternative credit model. In the year 1992, NABARD provided guidelines wherein banks could directly lend to SHGs. The model is still supported by NABARD by refinancing banks and promoting non-government organizations (NGOs) to invest more in SHGs. The implications of the efforts seemed to bring out positive impact in the sense that the programme managed to create 74 lakh SHGs covering over 10 crore households saving with the formal banking system with savings balance of over ₹ 70,00 crore as on 31 March 2011.
Self-help Group-2 Programme
The SBLP came out with various positive impacts; however, the programme was still affected by various issues such as inadequate outreach, multiple membership and borrowing by SHGs, delays in account opening and disbursal of loans. This prompted NABARD to introduce the SHG-2 programme in the year 2011–2012. A major change introduced relates to allowing voluntary savings opportunity for SHG members over and above the compulsory saving requirement. The programme also encouraged opening of individual no frills bank accounts for deposit of surplus savings so as to facilitate graduation from community banking to individual banking. Other additional features include things such as loans for longer duration, enabling joint liability groups within SHGs for people who have graduated faster to start or expand the economic activities.
Women SHG Development Fund
GOI created a women SHG development fund in the year 2011–2012 with a corpus of 500 crore to be operated by NABARD. The fund is intentioned to address issues pertaining to imbalance and region-wise disparities in the SBLP with a focus towards women SHGs in backward regions. The fund is focused towards supporting promotion of women SHGs, providing refinance to banks and financing enterprises set up by the women SHGs.
Business Correspondents and Facilitators
RBI introduced the following concepts in order to improve the outreach of the banking sector. The banks are advised to take the services of NGOs and other non-banking financial companies in order to reach the unbanked population. Business correspondents act as banks’ agents and carry out transactions on behalf of banks, whereas the business facilitators facilitate the process by referring clients to the bank.
No Frills Accounts
No frills account was an initiative of RBI to attract a large sect of unbanked population to open zero or very low minimum balance accounts in order to inculcate the habit of savings. The initiative also involved relaxing bank for know your customer (KYC) norms. Data suggest that although a lot of no frills accounts were opened as part of the initiative, however a majority were used to receive the cash transfers of other government programmes. The features of the NFA were also not supportive with a cap on the maximum balance and the number of transactions thus reducing the usability of the accounts.
Kisan Credit Cards (KCCs)
In order to provide a system for timely and adequate credit to farmers, the RBI has introduced KCC. Similarly, for other rural population, the RBI has come up with General Credit Cards (GCCs).
The above-mentioned schemes suggest that various initiatives have been undertaken by both GOI as well as RBI in the area of financial inclusion. However, the growth somehow was not sufficient to result in the decline of dependence of rural population on the informal sources of credit. The objective with which commercial banks were set up in India was to move towards financial inclusion. Though commercial banks have been working with the intention of achieving higher financial inclusion, they have still not been able to establish their presence in the rural areas.
Figure 1 presents the bank account penetration data of India in 2009, suggesting that 60,000 villages with population above 2,000 still did not have banking facilities. The SBLP was intended to fill in this gap by providing financial services to the unbanked and under-banked population of India. However, the initiative seems to have made a lopsided impact with a lot of regional imbalances, the reasons being manifold like initiative of local governments, existence of well-performing NGOs, etc. The southern states seemed to have made the most in the SBLP, while the states such as Bihar, Jharkhand, Madhya Pradesh and Assam which are struggling with poverty are left behind in the race. The northeastern states seem to be the most neglected, to the extent that even the Planning Commission of India does not have data on the level of financial services available in the region.
Thus, the SBLP seems to have made an impact on the lives of various rural Indians who were previously neglected. However, the SBLP also seems to have its own share of problems which need to be considered while future policy formulations.
Regional disparity—as the SBLP is dependent on formal institutions of credit the programme seems to progress more in areas where the banking network is strong, the northeastern states are still the most neglected.
Mismanagement of loans—a major challenge faced by the sector is the mismanagement of funds. While the loans should be used by SHG members for some kind of income generation activity, they are mostly used for personal purposes leading to difficulty in repayment.
Quality of SHGs—Quality of SHGs is another problem faced by the sector wherein promoters are working in achieving numbers through exponential growth and pay less attention to development of skills of the SHGs, thus bringing the quality under stress.
About the Organization
Lupin Limited, India is a transnational pharmaceutical company, with a wide global footprint. The company has an onshore and offshore presence with its products available in close to 70 countries. In India, Lupin continues to record exemplary growth as the company continues to outperform the Indian Pharmaceutical Market (IPM). During financial year (FY) 2011, Lupin’s domestic business recorded sales of ₹ 15,734 million as compared to ₹ 13,502 million last years, a growth of 17 per cent.
Lupin Foundation
Lupin started its corporate social responsibility (CSR) activities with Lupin Rural Support Programme (LRSP), (later rechristened as Lupin Human Welfare and Research Foundation) on 2 October 1988. The foundation was established by Lupin’s Founder Dr Desh Bandu Gupta with the objective of providing an alternative model of Holistic Rural Development in the country.
Lupin foundation is an independent entity of Lupin Limited, registered under societies act/trust acts and exempted under 35 AC and 80 G. LHWRF is also entitled to take foreign funding through its Foreign Contribution Regulation Act (FCRA) account. LHWRF has 65 permanent employees along with 700 project-based employees. CSR staff of LHWRF is engaged fully and singularly for CSR activities. The organization started with development work in 35 villages and now is credited with revitalizing, revamping and recreating life in some 2,200 villages. The organization works in the states of Rajasthan, Madhya Pradesh, Maharashtra, Uttrakhand, Uttar Pradesh and Gujarat. The foundation has been involved in making a difference in various poverty-stricken villages; the organization is engaged in creating employment and empowering people especially women. The organization is successful in creating model for poverty alleviation and employment generation which can be replicated in the country.
Figure 2 shows activities undertaken by the organization.
Lupin does not establish a poverty norm; instead, it allows people to define poverty for themselves by going in for participatory rural approach, so as to understand the aspirations of people. The strategy adopted was to begin at the micro level and move upwards for change. The foundation gained support from various government and NGOs. The foundation has divided its social responsibility objectives under three main heads—social, economic and infrastructure.
Lupin Human Welfare and Research Foundation—Bhopal Centre
LHWRF, Madhya Pradesh consists of two centres, namely Bhopal and Dhar. Foundation
began its operation in the state of Madhya Pradesh in 1998, with watershed
development programmes. It has been involved in various rural development
initiatives, by creating various women SHGs, programmes for agricultural
advancement, irrigation development, animal husbandry, etc. Through these
initiatives, the organization has been able to impact 83 villages in the Raisen and
Vidisha districts (both these districts feature in the 100 poorest districts of the
country). The Bhopal centre is involved in a myriad of CSR activities, namely: Women SBLP Agriculture and Irrigation Development Programme Animal Husbandry Programme Education Programme
The present case focuses on the SBLP.
Area of Operation
Madhya Pradesh (MP) is the second largest state in the country by area and the sixth largest in terms of population. Rightly termed as the ‘heart of India’, it is endowed with a rich cultural history and abundant natural resources. Despite this, as compared to national averages, the Human Development Index (HDI) of the state is low and the incidence of poverty is high. Committed to addressing poverty in its varied forms, the Lupin foundation began its operation in the state with watershed development programmes in 1998. Apart from the geographical spread, the work of the organization has grown into more holistic rural development initiatives through its programmes of women SHGs, agriculture advancement, irrigation development, animal husbandry development and strengthening primary education. Through these different development activities, over 5,000 families have benefited in the state of Madhya Pradesh by December 2012.
Women Self-help Groups— Bank Linkage Programme
Context
LHWRF, Bhopal has been working in Raisen and Vidisha districts. Both of these blocks feature in the list of the poorest 100 districts in the country. A major reason for poverty is the unavailability of credit at an affordable interest rate for undertaking productive activities. Hence, the poor are dependent on local moneylenders who provide credit at an annual interest rate of 60 to 120 per cent. Obviously, the poor are unable to avail credit, since income from any activity does not provide them enough returns to run the household after paying such a hefty interest amount. In order to address this, LHWRF began to organize poor families into women SHGs and subsequently grooming them for a period of 6–8 months, linking these SHGs with the Microsat branch of the Indian Bank, Bhopal. This bank has started extending credit to SHGs on an annual interest rate of 12–13 per cent. It offers multiple loans to SHGs on the basis of their cumulative savings up to the eight times or ₹ 4 lakh.
How Does It Work?
The foundation is involved in creating SHGs, to make financial services available to those who are otherwise likely to be bypassed by the formal banking system. The system helps in reducing the dependence of the group on moneylenders for financial needs, thus saving them from paying exorbitant interest rates (charged by moneylenders). The SHGs are all women groups formed with the objective to alleviate poverty and get secondary benefits of women empowerment by giving confidence and enhancing skills. The foundation is working to bring about a change in the lives of people by providing financial empowerment. LHWRF follows a model, wherein SHG is formed by the foundation and its daily management is taken care of by the foundation, while the financial services are directly provided by the bank. The model is described with the help of Figure 3.
Lupin—Bank Linkage Model
LHWRF promotes women SHGs consisting of 10–12 members on the basis of affinity. Each SHG elects a president, a secretary and a treasurer. The SHG members meet at least once every month. Each member saves ₹ 100–200 every month; however, certain groups save as much as ₹ 1,000 per month. The total monthly savings generated by the SHGs is ₹ 412,000/month. The total savings generated till date is ₹ 7,984,000.
In order to take care of day-to-day operations of SHG such as arranging for meeting, recording minutes of the meeting, assisting group in various formalities involved, the foundation appoints a para worker on every 20 SHGs and for every four to five para workers, there is one block worker to support in the operations. The foundation has promoted a total of 346 SHGs, impacting 3,685 families of which 2,109 are below poverty line. Once a group saves for at least 6 months, the foundation establishes collaborative links with bank. The linkage helps SHGs in meeting the needs of larger funds. Around 275 SHGs have been linked to bank. The SHG members have two available options for credit; they can either borrow from the savings fund the group has or the group as a whole can borrow money from bank. The amount of loan issued by bank to SHG is based on the savings of the group. The group members need to get insurance based on the loan amount; this is undertaken to reduce the risk of non-repayment of loan by one member in case of death. Bank takes a period of 10 days for disbursal of loan. The bank has issued a loan of ₹ 55,100,000 till date.
Impact
The analysis of impact of SHG bank linkage model reveals a comprehensive account for the impact of SHG formation on women. The analysis is based on data collected from 32 SHGs formed and nurtured by LHWRF and linked to Indian Bank for credit services. A major impact of the programme as described by women has been on their incomes, almost 60 per cent of the sampled respondents believed that their household income levels have increased because of the programme. Another important impact has been the formal and informal financial literacy skills provided by LHWRF staff to these women, which has helped them understand the concepts of thrift and credit and its importance in life.
Santo Bai (Rukmani Samuh)—Against all odds
Santo Bai, along with her husband was involved in agricultural and farm activities all through her life. With the little income she and her husband earned, she nurtured three children. Borrowing from a moneylender was out of cards for her, as the interest rates were exorbitant. Santo through her neighbour and field staff of Lupin came to know of the LHWRF—Bank linkage programme. After understanding the benefits of the programme, she expressed her desire to be a part of the programme. She along with her friends came forward to create Rukmani Samuh. Santo Bai was actively involved in group meetings, started saving regularly and made effective use of financial literacy training provided by the field staff of LHWRF. After saving for a period of six months, she borrowed her first cycle loan of ₹ 4,000 which she utilized for purchase of seeds and fertilizers. The meagre income from agriculture was not enough for her family and hence she decided to buy livestock to provide additional income, through her second loan of ₹ 20,000. By the time she paid off her second loan, her son was old enough to search for a livelihood for himself, thus Santo Bai got her third loan of ₹ 52,000 and purchased a second-hand jeep for her son who now earns money for himself. Through the help of LHWRF—Bank linkage programme and her dedicated efforts, she has been able to generate an additional income of ₹ 6,000–7,000 per month.
On being enquired about the perception towards interest charged by SHG bank linkage as compared to other sources like moneylender, almost all the SHGs believed that it was lesser in case of bank linkage. The SHGs boast of a 100 per cent repayment rate for loans.
The programme also seems to bring about various social impacts, the most important being better levels of self-confidence among women. Women also experienced a change in their communication skills and personality. The reasons cited include economic empowerment, exposure to people and meetings. The sample data and anecdotal evidence demonstrate an involvement of women in household decision-making process, with 48 per cent of them responding that decisions are taken jointly in their households. The interaction also reveals that around 70 per cent of women believed better status for women in household and community. Women also provided anecdotal evidence towards higher community participation by women.
The foundation has also been involved in providing capacity building skill training to SHG members, providing members additional livelihood opportunities—the major skills provided being weaving, stitching, parlour work, etc. The foundation has installed 200 sewing machines at Sanchi, Sultanpur and Gorganj area for the benefit of women. Various professional training courses related to computer training, etc. are also provided to women and young girls in order to enhance their skills. The foundation also takes care of other facilities such as health camps—especially gyno camps for women. The foundation sends a gynaecologist from the family planning association and charges ₹ 50 from the patients.
Steering through the Challenges
Another important challenge faced by SHGs relates to the amount of loan demanded and available from the bank linkage. Under the SHG bank linkage model, the loan amount is decided on the basis of savings of the group. The savings of the SHG members are generally small, that is, ₹ 100–200 per month (Exhibit 2). It has been found that on an average the loan amount comes to ₹ 8,000–10,000, which is grossly inadequate for pursuing any meaningful economic activity (Exhibit 1). Thus, the SHG members sometimes need to depend upon external sources such as moneylenders and relatives for additional credit requirement (at higher interest rates).
The SHG members are generally involved in activities such as agriculture, animal husbandry (Exhibit 4), etc.; many a times, it so happens that the agriculture produce is not enough or the animal dies, as a result of which the women are unable to generate income but are still required to pay off the loan amount due to peer pressure. The results also indicated that about 60 per cent of the SHG members felt that their income levels increased suggesting that still 40 per cent of the members did not witness any growth in their income levels. The foundation is working towards providing various skills such as weaving, stitching, etc., in order to make SHG members capable of facing this challenge.
Every Day is a Challenge for Mamta (Sita Samuh)
Life was not easy for Mamta, a resident of Dahira, Vidisha district; her family comprised of five members and her current income was not adequate to sustain the needs of the family. Mamta had experience in animal husbandry, but did not have enough money to buy a buffalo. The exorbitant interest rates charged by the moneylender acted as a deterrent for her dreams. She came to know about the LHWRF—Bank Linkage programme and she along with nine other like-minded women came together and thus ‘Sita Samuh’ was born. The group received ₹ 198,000 as their second loan; Sita received her share of ₹ 19,800, with which she bought a buffalo. Life seemed to have finally brought some happiness in her family; however, least she knew that her happiness was short lived. The buffalo died without providing any additional income to Mamta and her family. However, the liability of loan repayment still remains to haunt Mamta as she and her husband now manage not only a family of five, but also a loan of ₹ 19,800.
Another problem faced by the foundation is to devise a withdrawal strategy. Once the SHGs reach maturity, as of now the foundation has not withdrawn from any group; however, this is one of the most important decisions as the foundation needs to ascertain sustainability of SHG functions and ensure democratic management before withdrawal.
Sustainability and Future Issues
While analyzing the impact of a SHG bank linkage model, it becomes important to analyze its sustainability. On being asked from SHG members about their involvement in economic activity, about 58 per cent women responded being involved in some kind of economic activity or the other, while 42 per cent of the respondents were not involved in any kind of economic activity (Exhibit 3). The main economic activities of women included animal husbandry, agriculture and small enterprises such as Masala Papad unit, Saree shops, etc. The interaction with women SHGs revealed that the loan taken from SHG bank linkage was utilized not only for income-generating activities such as animal husbandry, agriculture, small enterprises, etc., but also for various personal purposes such as building house, marriage in a family, etc. The reason ascertained for this seems to be lower initial cycle loans. On being asked about the ownership of any asset, about 32 per cent of women responded to have an asset in their name, while 68 per cent of women still did not have ownership on any asset.
There also seems to be some dependence for credit still on sources other than SHG—about 58 per cent of the respondents were dependent on sources other than SHG bank linkage for extra credit. Further interaction revealed that, in order to ensure credit from SHG bank linkage, the women needed to have a minimum amount of savings, which resulted in them getting smaller loans than required; thus, they sometimes need to depend on extra sources such as moneylender and relatives. The figures put a question on the sustainability of SHGs in the longer run.
At the level of the promoter, there seems to be two main issues—one, there does not seem to be a clear withdrawal strategy in place. With a few groups nearing the stage of the fourth loan cycle, this may pose a problem in the near future. Also, the foundation needs to make efforts to analyze the loan utilization by SHG members in order to ensure that the money is invested in economic activity only, thus generating additional income for members.
Fighting the Debt Trap
The concept of microcredit for women emerged as a tool to bring not only financial empowerment to rural women but also social and political empowerment. The argument being that microcredit will ensure livelihood and income generation for women, thus providing them with an opportunity to improve their household status. Though the women are being appreciated for bringing money in the form of loans to their households but are burdened with loan repayment. Thus, women have to struggle to make the credit viable by making the activity for which loan has been undertaken to be viable and ensure repayment. In case, if the women are unable to make the activity viable, they are either forced to cut down on their consumption or work as daily wage labourers.
Conclusion
The LHWRF—Bank linkage programme seems to provide various positive impacts on the lives of rural women in the form of additional savings, improved confidence and personality, improved status in household and community among others. However, as any other, this programme also faces certain challenges, which if tackled correctly can prove to be a perfect programme for poverty alleviation. An important step towards sustainable SHGs can be building group enterprise which will tackle the problem of dependence on agriculture or livestock as the only livelihood option and also take into account the problem of using initial cycle loans for personal purpose as building group enterprise will ensure investment of this loan amount into income-generating activity.
Loan
Savings
Involvement in Economic Activity
Loan Utilization Pattern
SHG Information—Lupin Foundation, Bhopal Centre
Loan Process
